AODP Got It Covered Insurance Report 2018

Transcript

1 GOT IT COVERED? INSURANCE IN A CHANGING CLIMATE This report assesses the insurance sector response to the recommendations of the Task Force on Climate-related Financial Disclosures ( TCFD) and features an index of the world’s 80 largest insurers rated on their approach to climate-related risks and opportunities. | May 2018

2 ACKNOWLEDGEMENTS ShareAction gratefully acknowledges the financial support of the European Climate Foundation, Finance Dialogue, Hewlett Foundation and the KR Foundation for this project. These foundations kindly supported this project, but the views expressed are those of ShareAction. More information is available on request. We would further like to thank the panel of experts who gave their time to provide guidance to inform this research project, and particularly the development of the methodology and feedback during the review process. We also acknowledge the efforts made and time given to supply information by individuals who were nominated to represent their companies in this assessment. Report written and produced by: Toby Belsom, Pavel Kirjanas, Felix Nagrawala, Sam Hayward, and Peter Uhlenbruch of ShareAction, as well as Emily Franklin of the Imperial College Centre for Environmental Technology. ABOUT AODP AND SHAREACTION The Asset Owners Disclosure Project (AODP) rates and ranks the world’s largest institutional investors and assesses their response to climate-related risks and opportunities. The ratings are made public, providing much-needed transparency for beneficiaries, clients, investors and stakeholders, and emphasised through advocacy and direct engagement to drive change. In June 2017, ShareAction announced an agreement to take over the reins of the Asset Owners Disclosure Project (AODP). The intention was to build on the strong foundations established by 10 years of experience carrying out climate-related investor analysis. As the only comprehensive, climate-specific, independent, non-self-selective assessment, AODP prides itself on being the world’s benchmark of climate leadership in the investment system.

3 CONTENTS 02 FOREWORD 04 EXECUTIVE SUMMARY 08 METHODOLOGY 10 KEY FINDINGS 11 AODP GLOBAL CLIMATE INDEX 2018 GEOGRAPHIC COVERAGE 13 18 TCFD – GOVERNANCE & STRATEGY 24 TCFD – RISK MANAGEMENT 30 TCFD – METRICS & TARGETS BAN KI-MOON’S INSURANCE SECTOR CHALLENGE 35 39 APPENDIX 41 DISCLAIMER ABOUT AODP AND SHAREACTION

4 02 FOREWORD “We welcome this report by Asset Owners Disclosure Project (AODP), which has collected important information about the 80 largest global insurers’ recognition of and responses to climate related risk.” Dave Jones, California’s Insurance Commissioner Climate change poses risks for insurance companies, the world and largest in the United States, I have required insurance companies to disclose publicly so do responses to it by markets, businesses, their investments in oil, gas, coal and utilities so that consumers and governments. These risks need to be understood and addressed by insurance companies as insurance companies, investors, regulators and the public are better able to consider and address financial well as insurance regulators who are responsible for the stability and soundness of insurance companies risks to fossil fuel investments held by insurers which face the greatest transition risks. We also administer and insurance markets. the National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey of insurance These risks arise through three channels: the physical effects of climate change, the impact of changes companies, helped found and participate in the international Sustainable Insurance Forum which associated with a transition to a lower carbon economy, and potential liability risk for those businesses whose enables insurance regulators to develop and share activities have contributed to climate change. All best practices related to climate risk and insurance three of these categories of risk can have impacts on supervision, and we engage with insurance companies the business operations, underwriting and financial regarding climate-related risks as we perform our reserving of insurance companies. prudential regulatory responsibilities. We welcome this report by Asset Owners Disclosure The financial impacts related to transition risk are Project (AODP), which has collected important of particular concern as they implicate the potential information about the 80 largest global insurers’ reallocation of tens of trillions of dollars of investments. recognition of and responses to climate-related risk. It Insurance companies, insurance regulators, investors is important to note that the AODP report follows the and the public need to recognize, disclose and address disclosure structure recommended by the Financial these climate-related financial risks, as well as the other climate change related risks. Stability Board’s Task Force on Climate-related Financial Disclosures, which was arrived at with input To this end, as California’s Insurance Commissioner from the financial sector including insurers, as well as investors and regulators. overseeing the fourth largest insurance market in

5 03 We look forward to using the information contained in the report as we consider insurance companies’ response to climate risk and as we consider additional regulatory steps to make sure that insurers are considering and addressing climate-related risks. Insurance companies, regulators, investors and society at large will need to continue to work together to address the immense challenges of climate change and climate-related risks. This Asset Owners Disclosure Project report makes an important contribution to this effort. Dave Jones California’s Insurance Commissioner Dave Jones leads the California Department of Insurance and regulates California’s insurance market – the largest insurance market in the US – where insurers collect $288 billion a year in premiums. Jones is an international leader on climate change and the regulation of insurance. He was the Founding Chair of the Sustainable Insurance Forum, a network of global insurance regulators.

6 04 EXECUTIVE SUMMARY “Weather-related financial losses, regulatory and technological changes, liability risks, and health impacts related to climate change have implications for the business operations, underwriting, and financial reserving of insurance companies.” Perhaps unsurprisingly, the wealth of debate around The impacts of climate-related risks are a growing climate disclosures means European insurers continue reality for the insurance sector. This reality has key to dominate the leaderboard. implications for that sector's valuation. Weather-related financial losses, regulatory and technological changes, In contrast, with 43% of the poorly (D or X) rated liability risks, and health impacts related to climate insurers, the US is home to the most laggards. That change have implications for the business operations, said, an assessment of climate disclosure at The underwriting, and financial reserving of insurance Hartford, MetLife, and Travelers provide evidence that companies. certain US insurers are getting serious about tackling these issues. This survey utilises the framework provided by the Task Force on Climate-related Financial Disclosures (TCFD) Japanese insurers have seen a notable improvement in to benchmark responses from the world’s 80 largest climate-related disclosures. Tokio Marine, the leading insurers to our survey on climate-related risks and Japanese insurer, is rated BBB. opportunities. As such, we hope it makes a significant contribution to the debate surrounding the role of The TCFD recommendations provide a framework for the insurance sector in addressing climate change, our assessment, which looks at the companies' dual resulting in real improvements across the sector. role: as insurers and asset owners. LEADERS AND LAGGARDS TCFD GOVERNANCE AND STRATEGY Finding 1, 2, 3, 4 & 5: AXA, Aviva, Allianz SE, and Legal & General are leading the way on climate risk. Tokio Finding 6: Climate-related issues are primarily Marine, Legal & General, Credit Agricole, Allianz SE, viewed as a risk related to underwriting and Generali, NN Group, and Swiss Re showing the best investment portfolios, not as a business opportunity year-on-year improvement when compared to the previous AODP 2017 Global Climate survey.

7 05 The most common climate-relevant policy More than two thirds (69%) of the assessed insurers commitments covering portfolio management relate to were able to disclose financially material climate- capital allocation to invest in renewable energy assets, related risks but only 41% were able to identify reduce exposure to carbon-intensive assets (e.g. by business opportunities. excluding fossil fuels), or increase involvement in the rapidly growing green bond market. Finding 7: Reporting on climate risks differs between business models and area of operations Finding 10: Ceasing underwriting and investing in thermal coal is becoming a barometer of Direct insurers (property, real estate, corporate) and reinsurers have a greater tendency to identify climate- commitment to climate action related risks when compared to life insurers. Due to recent high-profile campaigns and corporate Finding 8: Just a third of insurers surveyed can say failures in the coal sector, insuring, underwriting and their approach to investing is climate-aware investing in thermal coal assets has proved to be controversial for insurers. The survey results show 34% have introduced policies, objectives, and that work needs to be undertaken on formalising approaches and creating a common set of guidelines strategies that aim for alignment with the goals of the Paris Agreement on energy transition or have related to exclusion of thermal coal assets. integrated climate risk policy across asset portfolios. Finding 11: The use of climate scenario analysis is still Despite these encouraging steps, 41% have not in its infancy formalised their approach to climate-related risks and portfolio management. A further 25% applied a limited For asset owners, scenario analysis is a key tool given approach that is guided by a broad set of sustainability principles but is not explicit about climate issues. by the TCFD recommendations. However, the use remains in its infancy, and only 10% of the assessed Finding 9: Among the leaders, commitments on insurers have undertaken scenario analyses, with a capital allocation are widespread further 8% considering their approach.

8 06 Finding 17: Low-carbon investment – On average 1% TCFD of AUM RISK MANAGEMENT Finding 12: Engagement with investee companies on 56% of assessed insurers report they invested in low-carbon investments (LCI). Our data suggests the climate-related risks is largely limited to improving their disclosures. Few insurers disclose escalation range of asset allocation for low-carbon investments strategies with investee companies varies significantly (from approximately 0% to 3.8% of total AUM). Based on the responses and public The survey shows that 30% of insurers surveyed use information, we calculate that the assessed insurers engagement with companies as a risk management or have allocated approximately 1% of their total internal mitigation tool. Promoting improved disclosure is more assets under management to low-carbon investments. US and Canadian insurers have the most low-carbon widespread than promoting actions, such as linking remuneration with climate targets. Few insurers have investments, 23% of assessed insurers have pledged to increase their LCI allocation, but only 8% have set a clearly identified mechanism to escalate engagement. clear targets. EMEA leads on LCI pledges (52% of Finding 13: There is a variety of approaches to assessed insurers in EMEA, 15% in Asia Pacific, 3% in the Americas). portfolio and insurance risk analysis, with analysis of physical risks in response to weather events being BAN KI-MOON’S INSURANCE more common. SECTOR CHALLENGE Carbon footprinting is the most commonly reported The last section of the report reviews sector progress technique used for portfolio risk analysis. against three of the challenges posed by UN Secretary- General Ban Ki-moon in 2016. Our data indicates that The analysis of value at risk from weather-related the industry is not on track to meet challenges 1 and 2 events was commonplace, but few insurers reported assessing their liability risk or other transition risks in the stated time frame. The challenges were: related to climate change. Measure carbon footprint of investment Challenge 1: portfolios by 2020, and decarbonise investments; TCFD METRICS & TARGETS Challenge 2: Double investments in sustainable energy by 2020; Finding 14: Metrics & Targets is a gap in the implementation of the TCFD recommendations. Develop auditable standards in the Challenge 5: insurance industry that incorporate the Sustainable Relative to other sectors, the insurance sector scored Development Goals. poorly on Metrics & Targets. This is supported by the finding of ShareAction’s recent climate assessment of the European banking sector. Finding 15 & 16: Less than a third of the largest insurers have measured their portfolio emissions However, this represents an increase from 11% in 2017. Data quality and coverage remain a key barrier to developing effective decision-making tools in this area.

9 07 RECOMMENDATIONS Each section of the survey includes a number of specific recommendations. Key overall recommendations include: must strengthen regulatory frameworks and Regulators mandatory requirements for climate-related disclosure, Investors should prioritise engaging with the US insurance sector to promote better disclosure and management of climate related risks and opportunities, To meet the challenges from Ban Ki-moon’s and the goals of the Paris Agreement, insurers need to take a more comprehensive and bold stance on climate change, To be fully compliant with the TCFD recommendations, insurers need bridge the gap identified in the survey around metrics & targets.

10 08 METHODOLOGY RATING BANDS CATEGORY DESCRIPTION AAA-A Leaders Demonstrates leading performance in most capabilities BBB-B Challengers Progressing to a wider variety of capabilities CCC-C Starting to take action Learners D Bystanders Limited disclosure on financial implications of climate-related risk X Laggards Data shows no evidence of considering financial implications of climate change Table 1: Rating bands with performance descriptors This tables shows how we scored each section of the survey, with each recommendation broadly receiving similar weighting in the scoring process. The AODP Global Climate Insurance Index rates and the maximum scores available in each question and section can be found in the appendix. ranks the world’s largest insurance companies on their response to climate-related risks and opportunities. SCOPING The objective of the insurance sector assessment was to identify leading practice, compare approaches and The index features the world’s 80 largest insurance evaluate the level of integration of climate risk into companies with a combined AUM of over 15 trillion investment and underwriting activities. The underlying analysis was carried out on public disclosures and USD. The assessment scope was determined using collected via a dedicated survey. two mechanisms: for publicly listed insurers, the 50 largest by market capitalisation were selected from This survey structure is aligned with the four core the Bloomberg Industry Classification Systems (BICS), elements of the recommendations of the Task Force excluding insurance brokers and companies where on Climate-related Financial Disclosures (TCFD): insurance revenues accounted for less than 40% of total revenues. for mutual and private insurers, Governance, Strategy, Risk Management and inclusion was based upon assets under management. Metrics & Targets. Survey questions further build on The geographic regions of the Americas, Asia Pacific existing major reporting frameworks, including SASB and EMEA were nearly equally represented by the (Sustainability Accounting Standards Board), UN number of companies as well as their cumulative AUM. Principles for Responsible Investment, NAIC climate risk survey, UNEP Finance Initiative Principles for Sustainable Insurance. CONSULTATION The assessment covered insurance activities and A range of stakeholders with relevant expertise and proprietary investment portfolios. It assesses top-level experience were consulted to feed into the design of strategic responses covering a corporate entity, rather the underlying survey. This included representatives than a subsidiary. This approach allows us to assess of global NGOs, leading institutional investors, a portfolio or business-wide approach, rather than a insurance industry experts, and experts on responsible niche investment choice. The full list of questions and investment reporting frameworks.

11 09 SECTION DESCRIPTION % WEIGHTING Disclose the organisation’s governance around climate-related risks and 16% Governance opportunities Disclose the actual and potential impacts of climate-related risks and 32% Strategy opportunities on the organisation’s strategy 28% Disclose how the organisation assesses and manages climate-related risks Risk Management Disclose the metrics and targets used to assess and manage relevant 23% Metrics & Targets climate-related risks and opportunities Table 2: TCFD core recommendations – Survey section weighting RATING AND SCORING SURVEY PROCESS Initial letters were sent to the Chief Executive Officers The breakdown of question scoring can be seen in the appendix. Where no information was available, a score of the 80 insurers to invite participation in the research of zero was given for that question. We acknowledge process. The survey was then sent via email to the that different types of insurers operate in different nominated respondent or to a relevant contact in the AODP contact database. Over 3 months was allowed regulatory and policy environments and have different for insurers to complete the survey and submit their business models. We put effort to account for these disclosure. Extensions were provided for some insurers differences in our survey design and also in the scoring and feedback was encouraged from participants. of certain questions that were not appropriate to certain insurers. RESEARCH Rating bands are determined statistically, and each participant was assigned a rating applicable to their aggregated score, from AAA through to D grade, with In the case of insurers who chose not to submit a an additional X category for those with zero score. survey response the AODP research team populated a response based on publicly available information. Key sources included 2016/2017 Annual and Sustainability Scoring is not fixed but relative to peers. As a relative reports; CDP climate change disclosure; NAIC climate measure, year-on-year changes in ratings might be risk survey disclosure; UN PRI transparency reports; caused by several factors and would not necessarily UN Principles for Sustainable Insurance disclosure. be an indication of ‘weakened’ approach. In instances where information was not available While those in the leadership category show promising in English, AODP hired external translators to work policy and practices on climate-related risk relative to alongside our research team to populate the survey. their industry peers, best practices continue to develop Completed responses were then sent to non-disclosers prior to publication for verification and opportunity even for those leaders. to provide further disclosure. In 2018, 24 insurance companies participated in the research process.

12 10 KEY FINDINGS BACKGROUND FINDING 3 This section will explore the performance of insurers on individual, regional and country levels (for cases Europe leads the way – European insurers dominate where the data has allowed meaningful country the leaderboard. level trends to be identified) and considers how the evolving debate around regulatory developments FINDING 4 might be influencing performance at geographic levels. This section also includes the individual ratings US houses the most laggards. The of all the insurers in this assessment. FINDING 5 FINDINGS ✓ Japanese insurers have seen an improvement in FINDING 1 climate-related disclosures AXA, Aviva, Allianz SE and Legal & General all are in the leadership group, rating either AAA or AA. FINDING 2 Tokio Marine, Legal & General, Crédit Agricole, Allianz SE, Generali, NN Group, and Swiss Re showed the most significant progress relative to the 2017 ranking.

13 11 AODP GLOBAL CLIMATE INDEX 2018 R AT I N G RANK CHANGE COUNTRY NAME 2017 RATING 1 AXA 1 France AA AAA ▲ AA 1 United Kingdom 2 ▲ Aviva AAA BB ▲ 3 Allianz SE AA 3 Germany 4 D ▲ 8 United Kingdom AA Legal & General Group 5 BBB − Aegon BBB Netherlands BBB CCC ▲ 3 France CNP Assurances 6 7 ▲ 6 Japan BBB D Tokio Marine Holdings 8 C ▲ Crédit Agricole Assurances France BBB 5 BBB 8 B ▲ 2 Switzerland Zurich Insurance Group Folksam Group 10 BBB ▼ 1 Sweden BB Assicurazioni Generali Group 11 D ▲ 5 Italy BB B 12 ▲ 4 Netherlands NN Group D 12 4 ▲ B Switzerland Swiss Re D B BBB ▼ 2 Norway Storebrand 14 CCC 15 D ▲ 3 France MAIF CCC ASR Nederland C ▲ 2 Netherlands 16 CCC n/a n/a Australia Suncorp Group Limited 17 CCC 18 D ▲ Nippon Life Japan 3 Dai-ichi Life CC 19 D ▲ 2 Japan MS&AD Insurance CC 19 C ▲ 1 Japan Natixis Assurances CC D ▲ 2 France 21 CC 22 ▼ 1 USA The Hartford CCC 23 ▲ 2 Japan CC D Sompo Holdings 24 C ▲ Munich Re Germany CC 1 C 25 D ▲ 1 Germany Hannover Re C 26 CC Manulife 1 Canada ▼ AMP Limited 27 D ▲ 1 Australia C C D ▲ 1 USA MetLife 28 C 29 D Travelers 1 USA ▲ Prudential plc C 30 D ▲ 1 United Kingdom Achmea C 31 BB ▼ 4 Netherlands Lincoln National Corporation D D − USA 32 D D − USA Allstate 33 D 34 C ▼ 1 Canada Great-West Lifeco D Groupama SA D − France 35 Fubon Financial 36 D − Taiwan D Industrial Alliance Financial Group D 37 C ▼ 1 Canada American International Group D n/a n/a USA 38 Prudential Financial 39 D − USA D Cincinnati Financial D 40 D − USA New York Life D 41 X ▲ 1 USA TABLE CONTINUES →

14 12 NAME RANK 2017 RATING CHANGE COUNTRY R AT I N G D 41 − Germany Talanx D 41 D Canada Sun Life Financial D − D USA 44 − D Chubb Sampo Group − Finland D 45 D 46 D − USA Nationwide Mutual Insurance Company D D 47 ▲ 1 USA Progressive X 48 − China D D China Pacific Insurance 49 D − AIA D Hong Kong D 50 D − Japan Meiji Yasuda Life D 50 D − Voya Financial USA Genworth Financial 50 D − USA D D 50 − China PICC Group D 50 1 ▲ D USA Ameriprise Financial X 55 D − Japan T/D Holdings D D 56 X ▲ 1 Taiwan Cathay Financial Holding D Ping An Insurance D − China 57 D D − South Korea Samsung Life 57 D 57 n/a Markel USA n/a Swiss Life Group D 60 X ▲ 1 Switzerland Fairfax Financial Holdings D 60 D − Canada Principal Financial Group D X ▲ 1 USA 62 D 63 − USA Northwestern Mutual D 64 USA ▲ 1 D Arch Capital Group X D X ▲ 1 USA State Farm Insurance Companies 65 D 66 D − Japan Sumitomo Life D CNA Financial Corporation X ▲ 1 USA 66 D D − Japan Japan Post Insurance 68 D 68 D Accident Compensation Corporation New Zealand − Zenkyoren X 70 X − Japan New China Life Insurance X 70 n/a n/a China China Life Insurance Company X X − China 70 X X − Taiwan Chunghwa Post 70 X 70 X − USA MassMutual Aflac X X − USA 70 Ageas Group 70 X − Belgium X Pacific Life X 70 D ▼ 1 USA Mitsui Life 70 X − Japan X Great Eastern Holdings X 70 n/a n/a Singapore Singapore NTUC Income 70 n/a n/a X Note on table Table 3: AODP rating table 2018 – 80 global insurers. n/a were not rated by AODP in 2017 Includes change against AODP 2017 index

15 13 GEOGRAPHIC COVERAGE ASIA PACIFIC EMEA AMERICAS 25 29 26 Number of insurers rated Figure 4: Insurers surveyed in 2018 across regions | * By number of insurers surveyed As indicated in the chart above, the assessed insurers The table below shows that EMEA is the clear regional leader followed by Asia Pacific and the Americas, are fairly evenly represented across the EMEA, Asia which displayed the weakest regional performance. Pacific and the Americas regions. Performance at regional and country levels has been considered The following paragraphs explore how key country by reviewing the averaged insurer scores for each performance trends have driven regional performance. respective geographic segment.

16 14 RATINGS ACROSS REGIONS 4 1 7 9 4 EMEA 7 1 6 12 ASIA PACIFIC 4 22 3 AMERICAS 50% 60% 70% 100% 90% 80% 40% 0% 10% 20% 30% A-AAA Numbers represent the insurers who achieved ratings across the regions. X D C-CCC B-BBB Table 5: Ratings across regions FINDING 3 All the four AAA-A rated insurers and nine out of ten of (due to Generali’s BB rating) with France featuring as the country with the most AAA-B rated insurers (AXA, the BBB-B insurers are from EMEA region, which sees CNP Assurances and Crédit Agricole Assurances). EMEA region once again dominating the leaderboard (in the 2017 AODP Global Climate Index report, all of The overall positive performance from the European the AAA-B rated insurers were from the EMEA region). insurers appears to reflect the debate around This year sees the inclusion of Italy in the leaderboard strengthening regulatory framework currently unfolding across the region. INSURERS WITH STRONGEST RANKING In 2018 the European Commission’s High-Level Expert BY REGION (AAA, AA, BBB, BB & B) Group on Sustainable Finance (HLEG) provided guidelines and recommendations for the financial services sector to increase the flow of capital towards JAPAN sustainable investments and identify key climate related risks. EMEA In the UK, the 2015 Bank of England’s Prudential Regulation Authority (PRA) Climate Change Adaptation Report reviewed the UK insurance industry on behalf of the Department for Environment, Food & Rural Affairs (DEFRA) providing an initial risk assessment relating to the PRA’s statutory objectives for insurers. Figure 6: Insurers with strongest rankings (AAA, AA, BBB, BB & B) by region

17 15 came from the US, contributing to the overall poor In France, 2015 saw the adoption of the French Energy performance of the Americas relative to the Asia Pacific Transition for Green Growth Law (or Energy Transition and EMEA regions. There are some exceptions. The Law), also known as Article 173. Article 173 is a ‘comply or explain’ mandate that requires institutional investors Hartford, MetLife and Travelers all gained C grading or above. to report on how ESG factors are integrated into investment decisions, as well as on how investors are In the US, there has been an effort to strengthen supporting the energy transition. oversight of the insurance sector in relation to climate The overall positive performance from the European risk and disclosure through the introduction of the insurers appears to reflect the societal and political National Association of Insurance Commissioners (NAIC) ‘Insurer Climate Risk Disclosure Survey’ momentum in the region on climate change and low (adopted in 2010 by California Department of carbon transition. At EU level, significant proposals are in under development to strengthen financial Insurance). This is a mandatory reporting initiative containing eight climate-related questions that cover supervision of climate related risks as well as regulatory requirements on financial institutions. investment, mitigation, financial solvency, emissions/ carbon footprint and engaging customers. However, FINDING 4 due to the structure, the survey allows respondents to avoid recognising climate risk. The NAIC survey in 2016 was administered on a mandatory basis in six states: Of the 49 insurers who received a D or X rating, 43% INSURERS WITH WEAKEST RANKINGS BY COUNTRY (D & X) AMERICAS USA 21 AMERICAS CANADA 4 ASIA PACIFIC COUNTRIES 19 EMEA COUNTRIES 5 Figure 7: Insurers with D and X rankings by region

18 16 California, Connecticut, Minnesota, New Mexico, New FINDING 5 York and Washington. We recorded a notable improvement in the rating of Japanese insurers since the last AODP assessment Despite these efforts many US insurers performed in 2017. Five insurers shifted upwards in the index. poorly with the majority of the assessed US insurers Tokio Marine achieved a BBB rating thus joining the towards the lower end of the index. The mandatory leaderboard and becoming the only non-European climate survey adopted by NAIC appeared to have provided more information compared to insurers’ insurer in the AAA-A and BBB-B rating bands. financial reports, but levels of disclosure varied. For It is not immediately clear what has driven the example, in three cases where insurers NAIC survey responses yielded them no score in our assessment: improvement in climate disclosures in Japan. However, we believe changes among major institutional investors Insurers who answered NAIC survey questions 1. might have contributed to this trend. For example, negatively; AODP assessment gives no score for Japan’s largest asset owner, the Government Pension a negative response, e.g. “The company does not Investment Fund (GPIF), is increasingly taking steps to integrate ESG factors into its investment processes, have a climate change policy”. and this is starting to ripple through Japan’s financial 2. Insurers who answered positively but provided ecosystem, including insurers. Another point of contrary commentary; AODP assessment gives no score for a response where no climate-positive influence could be Japan’s Stewardship Code (a outcome was achieved, e.g. “We considered voluntary regulatory tool first published in 2014 and the impact of climate change on the investment since revised in 2017), which encourages institutional investors to improve and foster their investments’ value portfolio but identified no significant climate- and sustainable growth via constructive engagement related risks”. or purposeful dialogue. The 2017 revisions included 3. Insurers who viewed climate issues only from an operational perspective; AODP assessment new guidance around the role of asset owners in scope covers proprietary investment assets as issuing mandates and monitoring their asset managers. well as insurance business but gives no score Of the 221 institutional signatories, 22 are insurance companies. for operational activities such as improving the energy efficiency of a company’s office buildings, supporting environmental charities etc. As outlined above, insurers receiving no scores in the AODP assessment, despite responding to NAIC, is possibly due are a likely result of the lack of pressure from insurers’ primary interest groups. Unlike Article 173 in France, which requires for climate disclosures to be incorporated into insurers’ annual report, NAIC survey responses are collected in a public database accessible through the California Department of Insurance website which are less visible to both shareholders and policyholders.

19 17 GEOGRAPHIC COVERAGE: RECOMMENDATIONS FOR REGULATORS AND SUPERVISORS We recommend a rapid strengthening of regulation covering insurers’ management of, and disclosures on, climate-related risks and opportunities, including investment risks and opportunities. Insurance supervisors in every region need a clear mandate to drive up standards amongst regulated entities in respect of climate-risk management. This will require that supervisors themselves undergo appropriate training and have the skilled personnel in their teams to assess the risks being run by the entities they supervise. FOR INVESTORS IN THE INSURANCE SECTOR Institutional investors should focus engagement on US insurers, where the survey has identified weaker rankings on the management of cliamte related risks. They should encourage US insurance companies to improve their management climate-related investment and insurance risks and opportunities.

20 18 TCFD – GOVERNANCE & STRATEGY BACKGROUND FINDINGS FINDING 6 This section will review the response to the questions that covered the Governance & Strategy section of the TCFD recommendations. The set of questions related Climate-related issues are primarily viewed as a risk related to underwriting and investment portfolios, not to governance covered 3 topics: as a business opportunity. • Board accountability (3 questions); Executive accountability (1 question); FINDING 7 • • Education and awareness (3 questions). Reporting climate risks differs between business models and areas of operations. The set of questions related to strategy covered 3 topics: FINDING 8 Identifying risks and opportunities (1 question); • Integration of risks and opportunities into strategy • Just a third of insurers surveyed can say their approach (6 questions); to investing is climate-aware. Strategy resilience and alignment (2 questions • FINDING 9 Among the leaders, policy commitments on capital allocation are most widespread. FINDING 10 Underwriting and investing in thermal coal is becoming a barometer of commitment to climate action. FINDING 11 The use of climate scenario analysis is still in its infancy. “Just a third of insurers surveyed can say their approach to investing is climate-aware.”

21 19 FINDING 6 FINDING 7 More than two thirds (69%) of the assessed insurers Direct insurers (property, real estate, corporate) and reinsurers have a greater tendency to identify were able to identify financially material climate-related climate-related risks when compared to life insurers. risks for their underwriting and investment portfolios. Our assessment shows that insurers are better The latter often refer to the fact that direct insurers have a more obvious exposure to climate-related positioned to disclose business risks posed by climate change rather than identify potential opportunities. risks. For direct insurers and reinsurers, the level of Only 41% were able to disclose business opportunities. weather-related losses clearly has a material and Though there are some exceptions, a qualitative immediate impact on business profitability. However, comparison with ShareAction’s recent assessment of the Prudential Regulation Authority (PRA) at the Bank of England identified a number of long-term climate- Europe’s leading banks, highlights that the insurance sector lags behind the banking sector in terms of related risks that affect life insurers. Air pollution, diseases, natural disasters, and weather events all product innovation. could affect health, morbidity, and mortality rates. Following a long-term assessment of mortality rates and the management of assets, the PRA found that life insurers face, in fact, more pressure to meet long- term financial obligations. Such financial liabilities and obligations are subject to unquantifiable changes due to climate change and yet a large share of life insurers have not identified climate-related risks as material to their business, as shown in the graph below. INSURERS BY TYPE WHO IDENTIFIED INSURERS WHO IDENTIFIED CLIMATE- RELATED RISKS AND OPPORTUNITIES CLIMATE-RELATED RISKS AND OPPORTUNITIES HAVE 55 IDENTIFIED 18 LIFE MIXED 29 NAMED KEY 49 RISKS DIRECT 6 NAMED KEY 33 REINSURANCE 2 OPPORTUNITIES 20% 40% 60% 0% 100% 80% 20% 0% 60% 80% 40% 100% NO YES NO YES Figure 10: insurers by type who identified Figure 9: insurers who identified climate-related risks and opportunities climate-related risks and opportunities

22 20 “11% of assessed insurers have introduced policies, objectives and strategies that aim for alignment with the Paris Agreement goals of energy transition” FINDING 9 FINDING 8 The policy framework assessment analysed insurers’ Climate policy commitments that cover portfolio management and asset allocation cover a range of strategic and policy documents on investment, risk different topics and areas of operations. The most management, active ownership, responsible or ESG widespread relates to policy commitments covering investment and similar relevant policies. Based on capital allocation to either invest in renewable energy evaluation of their a climate-aware approach to investing, insurers were classified into one of the assets, reduce exposure to carbon-intensive assets following four categories. 11% showcased an ambitious (e.g. by excluding fossil fuels) or increase involvement approach that accounts for the Paris Agreement goals in the rapidly growing green bond market. Other and considers the impact of their investments on the popular policy commitments include engagement with portfolio holdings or asset managers on climate-related energy transition and climate in general. 23% used a issues followed by engagement with regulators on comprehensive approach that fully integrates climate issues into the investment framework but is less climate policy. forward-looking than the ambitious approach. 25% applied a limited approach that is guided by a broad set of sustainability principles but is not explicit about climate issues. 41% showed no evidence of climate- aware approach to investing. HOW CLIMATE RISK IS FACTORED INTO INVESTMENT STRATEGY COMPREHENSIVE APPROACH AMBITIOUS APPROACH FULLY INTEGRATES CLIMATE ACCOUNTS FOR THE ISSUES INTO THE INVESTMENT PARIS AGREEMENT FRAMEWORK GOALS 11% 23% LIMITED APPROACH IS GUIDED BY A BROAD NO APPROACH SET OF PRINCIPLES 41% 25% Figure 11: How climate risk is factored into investment strategy

23 21 “Underwriting and investing in thermal coal is becoming a barometer of commitment to climate action” COVERING PORTFOLIO MANAGEMENT Renewable energy investment Excluding fossil fuels Supporting the green bond market Engagement with managers Policy and regulation debates Engagement with companies Supporting low-carbon indices 18 16 14 12 10 2 0 8 6 4 20 Figure 12: Formal policy commitments (FINDING 9) FINDING 10 permit exclusions, focus on the percentage of revenue, Due to recent high-profile campaigns and corporate exclude current clients (for underwriting) or do not failures in the coal sector, insuring, underwriting and investing in thermal coal assets has proved to be apply to passive mandates. None of the assessed insurers fully adhere to the Global Coal criteria controversial for insurers and other asset owners. Insurers play a key role in underwriting industrial developed by Ugerwald, which are often cited as most projects. comprehensive. Our analysis shows that increasing numbers of The assessment results show that work needs to be insurers have introduced policies on divestment from undertaken on formalising approaches and taxonomy thermal coal assets across investment portfolios, related to exclusion of thermal coal assets. and have proposed restrictions on underwriting activities. However, the industry has adopted a range of criteria without first establishing an industry standard or agreement on taxonomy. Many criteria

24 22 “Only 10% of the assessed insurers have undertaken scenario analyses, with a further 8% considering their approach.” SCENARIO ANALYSIS 66 6 8 NOT ASSESSED CONSIDERING ASSESSED Figure 13: Scenario analysis FINDING 11 For asset owners, scenario analysis is a key tool covered by the TCFD recommendations. However, it remains in its infancy and only 10% of the assessed insurers have undertaken climate scenario analyses, with a further 8% considering or are developing their approach. Qualitative analysis of the results shows that most of these insurers have undertaken an analysis of how their investment portfolios would be impacted under a two-degree scenario. A range of leading insurers also have undertaken analyses to explore how their portfolio is aligned with the energy transition and develop next steps in order to positively contribute to the energy transition through their portfolio investments.

25 23 TCFD – GOVERNANCE & STRATEGY: RECOMMENDATIONS FOR INDUSTRY Climate-related issues are primarily viewed as a risk related to underwriting and investment portfolios, not as a business opportunity. Though some insurers have reviewed and developed business opportunities related to climate change, those that have should consider reviewing product innovation in this area. Scenario analysis remain in its infancy. Though insurers have started to introduce processes and approaches to build and use scenario analysis that will develop over time. Leaders should start to develop forward looking scenario analysis and others should start the internal learning process around the introduction and implementation of scenario analysis.

26 24 TCFD – RISK MANAGEMENT BACKGROUND FINDINGS This section will review the responses to the survey FINDING 12 questions that covered the risk management section Engagement with investee companies on climate- of the TCFD recommendation. This set of questions covered 3 topics: related risks is largely limited to improving their disclosures. Few insurers publish escalation strategies • with investee companies Engagement (4 questions) • Portfolio tools (2 questions) FINDING 13 • Insurance risks (2 questions) As asset owners, insurers have increasing There is a variety of approaches to portfolio and insurances risk analysis. The most common approach responsibilities and challenges to engage with portfolio holdings, regulators, credit agencies utilised by insurers was to analyse transition risks such and others. The questions covering engagement as regulatory, technological; and reputational issues on covered a number of these topics. For the purposes asset portfolios. of this survey, these were incorporated into the risk management section as the ultimate purpose of these engagements was often to alleviate or identify climate-related risks. “The insurance industry (as asset owners) should do more to develop engagement strategies that go beyond purely requiring improved disclosures and promote on the introduction of science-based targets or linking remuneration with emission reductions.”

27 25 “An ongoing criticism of much engagement undertaken by asset owners and asset managers is that they lack mechanisms for escalation if results are not forthcoming. The data supports this criticism – few insurers have clearly identified a mechanism to escalate engagement.” FINDING 12 An ongoing criticism of much engagement undertaken AODP’s survey records that 30% of insurers in the by asset owners and asset managers is that they survey use engagement with companies as a risk lack mechanisms for escalation if results are not management or mitigation tool. The survey highlighted forthcoming. The data supports this criticism – few that engagement with companies, policymakers, insurers have clearly identified a mechanism to industry trade associations is widespread. escalate engagement. Where escalation mechanisms have been identified - support of climate-related Company engagement with investee companies shareholder resolutions is the most common. A small and other third parties is commonly undertaken on number of leading insurers also reported time-bound better disclosure with few insurers (as asset owners) objectives and divestment procedures. promoting initiatives which involved actions such as withdrawal from trade bodies or linking remuneration with climate ‘targets’. CLIMATE-RELATED ENGAGEMENT WITH THIRD PARTIES 25 Policymakers 24 Investee companies Industry trade associations 20 12 Civil society organisations Investment consultants or advisors 8 Industry lobby groups 7 Credit rating agencies 5 20 25 30 5 10 15 0 Figure 14: Climate-related engagement with third parties

28 26 CLIMATE-RELATED ENGAGEMENT – TOPICS Improving climate-related disclosure 16 Emissions reduction 11 TCFD aligned disclosure 9 Setting climate-related 6 science-based targets Scenario stress testing 5 Strategy alignment with 5 a 2°C or lower scenario Linking remuneration 4 to climate-related KPIs Withdrawal from trade associations 2 which lobby against climate action 18 2 14 12 0 16 10 8 6 4 Figure 15: Climate-related engagement – topics CLIMATE-RELATED ENGAGEMENT – ESCALATION We vote (or instruct to vote) in support of 10 climate-related shareholder resolutions We follow a disinvestment procedure 7 We file or co-file climate- 4 related shareholder resolutions We set time-bound engagement objectives 4 We ensure our external managers 2 implement a thorough engagement policy 2 4 0 6 8 10 12 Figure 16: Climate-related engagement - escalation

29 27 FINDING 13 This section reviewed how insurers had utilised and In insurance risk analysis , the survey tried to developed portfolio and insurance risk analysis tools to differentiate between what actions these insurers take assess and manage climate-related risks. to assess and manage climate-related risks in addition to those actions that they take regularly as part of , unsurprisingly, there was a In portfolio risk analysis their ongoing risk assessments. Assessment of risks to variety of approaches. The most common approach assets and insurance books was most common. Fewer utilised by insurers was to analyse transition risks insurers had started to assess liability risk or other such as regulatory, technological; and reputational transition risks. issues. Others had used various forms of portfolio assessments in order to estimate exposure to climate- related risks across asset classes and portfolios such as stranded assets, carbon liabilities and emerging regulatory/technological environments. PORTFOLIO-WIDE ASSESSMENTS OF RISKS ASSOCIATED WITH LOW-CARBON TRANSITION Other transition risks (policy and 14 legal, technology, market, reputation) Existing and emerging regulatory 10 requirements related to climate change 10 Physical risks (acute and chronic) 8 Stranded assets This has not yet been assessed 5 but is planned to be done Carbon liabilities under 4 carbon price scenarios We expect our managers to measure 3 and manage these risks at the asset level 2 10 8 16 12 14 0 6 4 Figure 17: Investment portfolio assessments of risks associated with a low-carbon transition

30 28 INSURANCE UNDERWRITING RISKS IDENTIFIED Physical risks from changing frequencies 29 and intensities of weather-related perils caused by climate change Calculated Probable Maximum Loss (PML) of insured products from weather-related natural 14 catastrophes caused by climate change Transition risks resulting from a reduction in insurable interest due to a decline 7 in value, changing energy costs, or implementation of carbon regulation Liability risks that could intensify due to a 6 possible increase in litigation 15 20 10 0 35 5 30 25 Figure 18: Insurance underwriting risks identified

31 29 TCFD – RISK MANAGEMENT: RECOMMENDATIONS FOR INDUSTRY/FOR INVESTORS The insurance industry (as asset owners) should do more to develop engagement strategies that go beyond purely requiring improved disclosures and promote on the introduction of science-based targets or linking remuneration with emission reductions. Where engagement has been unsuccessful then the industry needs to be more rigorous and clearer on subsequent escalation strategies. Various portfolio tools are being developed to help asset owners (including insurers) to assess climate-related risk across asset classes and portfolios. We would recommend that insurers look to test and innovate new approaches that incorporate forward-looking indicators.

32 30 TCFD – METRICS & TARGETS FINDINGS BACKGROUND FINDING 14 This section will review the responses to the questions that covered the metrics and targets Metrics and Targets is proving to be a gap in section of the TCFD recommendation. This set of the implementation of TCFD recommendations. questions covered 3 topics: FINDING 15 Metrics (4 questions) • Portfolio emissions (1 questions) • Portfolio emissions analysis is becoming more Targets (3 questions) • commonplace though still undertaken by less than a third of leading insurers. This section explores the sector’s response to possibly the most difficult core recommendation of FINDING 16 the TCFD – the metrics and targets used to measure, assess and manage climate-related risks and Portfolio emissions analysis and carbon footprinting opportunities. Our analysis of the sector identifies are increasing in sophistication. this area as the weakest area of response from leading insurers – a clear TCFD gap. FINDING 17 Low-carbon investment – on average 1% of AUM. “The survey identifies Metrics & Targets as a clear ‘gap’ in the implementation of the TCFD recommendations. In response to this insurers should identify straightforward metrics to relate to climate strategy and set targets to outline their contribution to the energy transition.”

33 31 AVERAGE SCORE IN EACH TCFD SECTION BY RATING BAND RISK MANAGEMENT STRATEGY GOVERNANCE METRICS & TARGETS AAA-A AAA-A AAA-A AAA-A 77% 56% 70% 67% BBB-B BBB-B BBB-B BBB-B 46% 35% 35% 37% CCC-C CCC-C CCC-C CCC-C 17% 19% 30% 21% D D D D 6% 9% 5% 4% X X X X 0% 0% 0% 0% Figure 19: Average Score in each TCFD section by rating band FINDING 14 When compared to the other TCFD core across a number of other industrial sectors and was an recommendations, the survey results highlight that important finding of ShareAction’s recent review of the the insurance sector has lagged in its use of suitable European Banking sector. metrics and targets. We suspect this will be the same

34 32 “A third of assessed insurers have measured their portfolio emissions, this represents a significant increase from 11% in 2017” UPTAKE OF INSURERS CALCULATING PORTFOLIO EMISSION ANALYSIS LEADERS 4 CHALLENGERS 7 9 LEARNERS BYSTANDERS 2 LAGGARDS 10% 90% 100% 70% 80% 50% 60% 30% 40% 20% 0% ↑ PROPORTION OF INSURERS NO YES Figure 20: Uptake of insurers calculating portfolio emission analysis FINDING 15 Engagement with portfolio companies on • Even though just under a third of assessed insurers emissions reduction, and Disinvestment from certain fossil fuel assets. have measured their portfolio emissions, this • represents a significant increase from 11% in 2017 and is possibly driven by initiatives such as the Montréal However, only small number (about a fifth) set Carbon Pledge, the Portfolio Decarbonisation Coalition quantitative reduction targets. Others have quoted and the Article 173 in France. data issues and a fear of unintended consequences as reasons for not setting quantitative targets. Over 66% of assessed insurers who measure portfolio Despite these developments, it is also evident that a emissions also use this analysis as a risk management clear majority (72%) of assessed insurers have not yet tool. A third have adopted a decarbonisation strategy started using portfolio emissions as a measurement which might include: tool. Our analysis shows no insurers have measured portfolio emissions across their entire portfolio – as Underweighting carbon-intensive assets or sectors, • defined in the methodology. Portfolio emissions analysis often only covers 40-60% of total assets and • Increased allocation to investments in renewables and other low-carbon assets, excludes entire asset classes.

35 33 “The assessed insurers have allocated on average 1% of their total proprietary assets under management to low carbon investments.” FINDING 16 As data availability improves and new methodologies We calculated the aggregate total estimated figure get developed, this AODP survey shows that metrics of around 70bn USD for all LCI by the insurers in our survey. We believe this figure is an underestimation are becoming more sophisticated and forward-looking. Leading insurers are now utilizing tools that allow them of total LCI investments, as the sector does not to evaluate the alignment of an investment portfolio fully disclose quantified amounts of their LCI. As a comparison, this figure is significantly less than the 1.1 with the low-carbon transition. Tools are also being trillion USD per annum the IPCC says is required to be developed to measure the real impact of investment decisions such as the concept of ‘avoided emissions’. allocated to low-carbon generation, energy efficiency and energy-related R&D in order to transition towards , a low-carbon economy ( The Financial System We Need Data quality and coverage remain a key barrier to developing effective decision-making tools. The survey UNEP Oct. 2015, p8). respondents highlighted that an important data issue The EMEA region has the highest number of insurers surrounding scope 3 emissions/product lifecycle emissions and double counting. who report on LCI (72% vs only 38% in Americas), although the American insurers reported higher FINDING 17 allocation to LCI. Asia Pacific lags in terms of absolute and proportionate LCI capital allocation. Increasing allocation to low carbon investments (LCI) is critical to ensure and finance a timely and orderly Just under a quarter of insurers (23% of assessed energy transition. A small number of leading insurers insurers) have pledged to increase their LCI allocation have introduced a stated aim to align portfolios with a but only 8% have set clear targets rather than broad two-degree scenario accompanied by policies on asset commitment statements. EMEA leads on LCI pledges (52% of assessed insurers in EMEA, 15% in Asia allocation to low-carbon assets or investments. Pacific, 3% in Americas). Though 56% of assessed insurers specifically reporting they invested in low-carbon investments, associated commentary reveals some real issues around AVERAGE LCI INSURERS REGION standardisation of taxonomy and measurement. WITH LCI AS % OF AUM Where figures were provided by insurers, the range Americas 1.61% 38% of asset allocation to low carbon investments varies significantly (from approximately 0%-3.8% Total AUM). 0.47% 19% Asia Pacific Based on the data responses and public information, we have calculated that the assessed insurers have 72% EMEA 0.79% allocated on average 1% of their total proprietary assets under management to low carbon investments. Table 21: LCI per region

36 34 34 TCFD – METRICS & TARGETS: RECOMMENDATIONS FOR INDUSTRY/FOR INVESTORS • The survey identifies Metrics & Targets as a clear ‘gap’ in the implementation of the TCFD recommendations. In response to this insurers should identify straightforward metrics to relate to climate strategy and set targets to outline their contribution to the energy transition. • Assessing portfolio emissions and making allocations to low-carbon investment remain the most transparent strategies in response to climate-related risks. Insurers should increase the adoption of those strategies and extend the application to all portfolio asset classes The insurance industry needs to actively contribute to developing • and adopting standard taxonomies, but the lack of a standard taxonomy should not slow down capital allocation to climate mitigation and adaption and other low carbon investments.

37 35 35 BAN KI-MOON’S INSURANCE SECTOR CHALLENGE BACKGROUND FINDINGS It is now two years since the UN Secretary-General FINDING 18 issued the challenges in his April 2016 address to the Insurers found to be failing on three of Ban Ki-moon’s UN High-Level Meeting on Resilience in New York, urging the insurance sector to integrate climate- challenges. related considerations across their collective US$25 trillion investment portfolio. This section assesses the insurance industry’s response to those challenges. The five challenges are outlined below; Measure carbon footprint of investment portfolios 1. by 2020, and decarbonize investments 2. Double investments in sustainable energy by 2020 Work with UN to ensure that early warning and 3. early action systems are made available to most vulnerable countries by 2020 Provide the most vulnerable with greater access 4. to risk transfer mechanisms 5. Develop auditable standards in the insurance industry that incorporate the Sustainable Development Goals. We reviewed this year’s survey responses to identify what progress insurers have made against these challenges. Our data scope does not cover challenges 3 and 4 and therefore these have not been considered, however, our survey responses do allow for meaningful commentary around progress made on challenges 1, 2 and 5. “To meet Ban Ki-moon’s challenges 1, 2 and 5 in the given time frame, the insurance industry should: Decarbonise investment portfolios; Increase allocation of capital to low-carbon investments and; Devise and apply investment and insurance metrics that refer to the Sustainable Development Goals.”

38 36 “Insurers are falling short on each of the key elements referred to in Ban Ki-moon's challenges 1, 2 and 5.” FINDING 18 The table below shows the majority of insurers are yet Our data has allowed us to draw insight across three to begin undertaking carbon footprinting of their entire of Ban Ki-moon’s challenges to the insurance sector, investment portfolios or use this information to actively and as the analysis below indicates, insurers are decarbonise their investments. Our data shows that falling short on each of the key elements referred to in 72% of insurers do not undertake carbon footprinting challenges 1, 2 and 5. of their investments, and only 8% undertake carbon footprint assessments that cover more than half of their Challenge 1: Minority of insurers undertake carbon investment portfolios. These figures indicate that the footprinting across their investment portfolios majority of assessed insurers have not yet met Ban Ki- moon’s first challenge. ASSESSING PORTFOLIO EMISSIONS INTENSITY THE 28% ASSESS LESS THAN 28% ASSESS 50% OF TOTAL INVESTMENT DO NOT 72% PORTFOLIO ASSESS Figure 22: Assessing portfolio emissions intensity

39 37 6% 12% LOW-CARBON INVESTMENT 62% COMMITMENTS NO COMMITMENTS OTHER COMMITMENT DOUBLE OR MORE Figure 23: Low-carbon investment commitments Majority of investors yet to integrate SDG Challenge 5: Minority of insurers committing to Challenge 2: goals into metrics doubling low-carbon investments The chart above indicates that the vast majority of Ban Ki-moon’s fifth challenge asks for insurers to assessed insurers are yet to make commitments to develop auditable standards in the insurance industry that incorporate the Sustainable Development Goals. low-carbon investments. We note that low-carbon A review of survey responses related to the use investments represent a broader category than of metrics across their investment and insurance the ‘sustainable energy’ metric referenced in Ban activities reveals that a minority of asset owners are Ki-moon’s second challenge, and suggests that incorporating metrics related to the SDGs. the number of insurers committing to double their sustainable energy investments could be lower than the 8% identified in our survey group who have committed to doubling their low-carbon investments.

40 BAN KI-MOON’S INSURANCE SECTOR CHALLENGE: 38 38 RECOMMENDATIONS FOR INDUSTRY To meet Ban Ki-moon’s challenges 1, 2 and 5 in the given time frame, the insurance industry should: 1. Decarbonise investment portfolios, using carbon footprinting to assess progress; Allocate capital to low-carbon investments, including clean energy 2. investments; and 3. Devise and apply investment and insurance metrics that refer to the Sustainable Development Goals.

41 39 APPENDIX TABLE 1: FULL QUESTION LIST AND SCORING MAX % ENTITY* # QUESTION SCORE SECTION 7% G1/ BOARD ACCOUNTABILITY Which of the following best describes the board’s oversight of climate-related issues? G1.1 3% ORG ORG G1.2 How climate-related issues are integrated into board discussions? 3% Has the board identified climate change as a material issue? 2% ORG G1.3 3% G2/ EXECUTIVE ACCOUNTABILITY How your organisation has assigned climate-related responsibilities related to investment G2.1 3% ORG and underwriting? 6% G3/ EDUCATION/AWARENESS Have you publicly supported the adoption of final TCFD recommendations? By when do G3.1 3% INS you intend to fully implement these recommendations for your business? Has the organisation introduced structured educational/awareness programmes for GOVERNANCE – 16% G3.2 2% INS key internal decision makers on the potential impact of climate-related risks within the business? Summarize steps the company has taken to educate clients on mitigating climate liability G3.3 INS risks and encourage policyholders to reduce the losses caused by climate change- 1% influenced events. S1/ IDENTIFYING RISKS & OPPORTUNITIES 4% Have climate-related risks and opportunities that could have a material financial impact ORG S1.1 4% been identified? S2/ INTEGRATION OF RISKS & OPPORTUNITIES INTO STRATEGY 21% As an asset owner, how have you factored climate-related risks and opportunities into the S2.1 7% AO group level investment strategy or policy? For any of the following, do you have climate-related incentives, which are forward- S2.2 AO 2% looking and based on long-term investment horizons? As an asset owner, how is the management of climate-related risks embedded into your AO S2.3 contractual agreements with professional service providers (asset managers, proxy voting 3% advisors, investment consultants, etc.)? How do you ensure the requests are being met? How are climate-related issues factored into asset manager selection process by your S2.4 1% AO investment consultant or internal investment executive? STRATEGY – 32% Do you publish (externally or internally) information on the potential impacts of climate- S2.5 3% INS related risks and opportunities on your core businesses, products, and services? Are any specific climate-related products or services being offered or are under 6% INS S2.6 development? S3/ STRATEGY RESILIENCE & ALIGNMENT 8% As an asset owner, have you assessed the resilience and alignment of the organisation’s S3.1 AO 6% strategy, taking into consideration different climate-related scenarios? As an insurer, have you assessed the resilience and alignment of the organisation’s INS S3.2 1% strategy, taking into consideration different climate-related scenarios?

42 40 MAX % # QUESTION ENTITY* SCORE SECTION 12% RM1/ ENGAGEMENT Have you incorporated climate-related issues into your engagement with investee RM1.1 AO 4% companies, key service providers and external parties? Do you encourage any of the following during your engagement with investee companies RM1.2 5% AO and corporate borrowers? 2% AO RM1.3 Do you publish annual voting records on proxy votes? Please select the collaborative engagement initiatives and industry associations you 1% RM1.4 ORG participate in. 11% RM2/ PORTFOLIO TOOLS As an asset owner, has the business undertaken a portfolio-wide assessment of potential AO RM2.1 9% systematic risks associated with the transition to a low-carbon economy? As an asset owner, has the business developed tools to help identify and assess AO RM2.2 climate-related risks and opportunities in portfolio construction, stock selection or asset 2% RISK MANAGEMENT – 28% allocation? RM3/ INSURANCE RISKS 5% As an insurer, does the business have a process for identifying and assessing climate- INS RM3.1 3% related risks on insurance or reinsurance contracts or agreements? Are there geographic locations, perils or coverages for which the company has increased 2% RM3.2 INS rates, limited sales, or limited or eliminated coverages because of catastrophic events? 10% MT1/ METRICS As an asset owner, has the business developed metrics used to assess climate-related MT1.1 AO 3% risks and opportunities in investment decisions? As an insurer, has the business developed metrics used to assess climate-related risks INS MT1.2 3% and opportunities in underwriting decisions? AO MT1.3 As an asset owner, have you measured low-carbon assets in your portfolio? 3% MT1.4 1% AO As an asset owner, have you measured high-carbon assets in your portfolio? 8% MT2/ PORTFOLIO EMISSIONS As an asset owner, have you calculated your aggregate or specified portfolio emissions AO MT2.1 8% intensity? 5% MT3/ TARGETS MT3.1 AO 1% As an asset owner, has the business developed climate-related targets? METRICS AND TARGETS – 23% INS MT3.2 As an insurer, has the business developed climate-related targets? 1% As an asset owner, have you introduced an asset allocation policy on low-carbon assets? AO MT3.3 3% Has this commitment resulted in modifications of asset allocation or stock selection or weighting? *Whether from an asset owner (AO) or insurer (INS) perspective, or at the group level (ORG)

43 41 DISCLAIMER ABOUT SHAREACTION This publication and related materials are not intended to provide and do not constitute financial ShareAction (Fairshare Educational Foundation) or investment advice. ShareAction makes no is a registered charity that promotes responsible representation regarding the advisability or suitability investment practices. ShareAction believes that of investing in any particular company, investment fund or other vehicle or of using the services of any responsible investment helps to safeguard investments as well as securing environmental and social benefits. particular entity, pension provider or other service provider for the provision of investment services. A decision to use the services of any pension provider, shareaction.org or other entity should not be made in reliance on any [email protected] of the statements set forth in this publication. While +44 (0)20 74037800 every effort has been made to ensure the information 16 Crucifix Lane in this publication is correct, ShareAction and its agents cannot guarantee its accuracy and they shall London, UK SE1 3JW not be liable for any claims or losses of any nature in connection with information contained in this ABOUT AODP document, including (but not limited to) lost profits or punitive or consequential damages or claims in The Asset Owners Disclosure Project (AODP) is a negligence. ShareAction did not assess insurers according to financial performance or metrics. The ranking of global asset owners and asset managers research in this report was carried out between that is managed by responsible investment charity ShareAction. The objective of the AODP is to protect January and April 2018. During the period of analysis, retirement savings and other long-term investments the entities surveyed were informed of the answer options selected for them by email and were given from the risks posed by climate change by improving the opportunity to comment on or ask questions on disclosure and industry best practice. these to make additional disclosures or to provide CONTACT clarification. Any notifications of changes, information or clarification not drawn to ShareAction’s attention prior to the deadlines are not included in the report. Toby Belsom Head of Research ShareAction [email protected] Pavel Kirjanas AODP Project Manager ShareAction [email protected] The opinions expressed in this publication are based on the documents specified. We encourage readers to read those documents. Online links accessed 23 November 2017. Fairshare Educational Foundation is a company limited by guarantee registered in England and Wales number 05013662 (registered address 16 Crucifix Lane, London, SE1 3JW) and a registered charity number 1117244, VAT registration number GB 211 1469 53

44 ShareAction 16 Crucifix Lane London, UK SE1 3JW shareaction.org [email protected] +44 (0)20 74037800

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